Will N.J. trade a higher gas tax for a lower death tax?

TRENTON — New Jersey's cheap gas is a point of pride in an otherwise high-tax state.

On the other hand, the Garden State is notorious for its duo of death taxes often landing it a spot on superlative lists like "Where not to die" and "Worst states to die."

New Jersey is just one of two states to impose both a tax on a person's assets after they die — the estate tax — and on the heir inheriting the estate — the inheritance tax.

As Gov. Chris Christie and lawmakers grapple with finding a way to finance much-needed road and rail projects, the big question making the rounds in Trenton is: Will state leaders trade a higher gas tax for lower "death" taxes?

Lawmakers are considering an increase in the gas tax, either on gas at the pump or wholesale purchases from refineries, in exchange for the elimination of the estate tax. Some believe such a deal would cushion the political blow from raising the gas tax in a car-crazy state.

Christie, a likely presidential candidate who has put "everything on the table" in finding ways to fund the soon-to-be broke Transportation Trust Fund, has not yet tipped his hand on gas taxes. But he has expressed his disdain for the estate and inheritance taxes.

"It's extraordinarily expensive to die in this state," Christie said in a December interview on NJTV.

While these death taxes may sound like they're only for the very wealthy, people backing their repeal say New Jersey's uniquely low thresholds make it a middle-class problem.

The estate tax is levied against the real estate, bank accounts, retirement accounts, life insurance payouts and investments that make up an estate. That gets paid to the state when a person dies, as long as the estate is worth $675,000 or more and it is not bequeathed to a spouse.

Its companion tax, the inheritance tax, charges whoever inherits money or property after a person dies. Close relatives are treated better than more distant relatives.

Critics of the estate tax note that in a state where the average house is worth $296,000, it doesn't take much to get to $675,000.

"For people who own a house in New Jersey, if they just own their house free and clear and have a little bit of retirement income leftover — and remember what happens here, once you get to $675,000 and $1, the tax isn't on the $1. It's on the $675," Christie said. "This affects most middle class families in New Jersey who own their own home."

New Jersey's 14.5 cent tax on each gallon of gas is the second lowest in the country. Every penny increase would generate another $50 million a year for the Transportation Trust Fund, which by July will only be able to pay off old debt.

State Assembly Speaker Vincent Prieto (D-Hudson) has said Republicans and Democrats will have to "jump off the cliff together" to get it done. Some say repealing or reforming the state's hefty estate tax may give them some political cover.

Assemblyman Jay Webber (R-Morris) argued for a gas and estate tax trade-off in an October op-ed, saying a tax increase should "be coupled with the elimination of a tax that is one of our state's biggest obstacles to economic growth: the death tax."

A gas tax hike would cost households earning less than $45,000 a year a larger share of their income than any other income level, according to New Jersey Policy Perspective, a left-leaning think tank.

It's wrong to try to extract a price for an increase in the gas tax, particularly if it's a gift for the well-heeled, said Gordon MacInness, president of NJPP.

"You can't sacrifice something that is essential to everyone and our future for the benefit of a few," he said.

Assemblyman Anthony Bucco (R-Morris) has backed legislation to phase out the estate tax in the past, saying it's a misconception that such a move would only benefit the very wealthy.

"This really affects the middle class," Bucco said. "The rich have the money to hire accountants, hire lawyers, take up residency other places and essentially get around this tax. The mom-and-pop pizza shop, something happens and suddenly the family is being forced to sell the business because they can't afford to pay the estate tax to keep it."

New Jersey's $675,000 estate tax exemption is far below the federal threshold of $5.34 million. And its top tax rate of 16 percent is among the highest in the country.

The inheritance tax rate can also reach 16 percent, and the exemptions are lower still.

Bucco said those thresholds are driving New Jersey residents to retire elsewhere, because "they simply can't afford to die here."

Roughly 85 percent of businesses in New Jersey are small businesses, and many are family-run, New Jersey Business and Industry Association President Michele Siekerka said.

Her organization surveyed its members, who said estate and inheritance taxes influence their decision-making.

"What that means is, when they're going to get ready to sell their business or transfer their business onto the next generation, they're not going to do that here in New Jersey, because they know that is eventually going to be subject to an estate and inheritance tax," she said.

Thomas Bracken, president of the state Chamber of Commerce, said he strongly supports a deal that raises the gas tax and cuts the estate tax. Raising the gas tax supports commerce and cutting the estate tax would discourage people from leaving to die.

"The combination of those two would be very, very significant to the business community and the competitiveness of the state of the New Jersey," said Bracken, who also chairs Forward New Jersey, a coalition of business and other groups lobbying for transportation funding.

New Jersey levied estate taxes on 3,467 estates in the fiscal year that ended in June, sending $319 million into state coffers, according to data from the state's nonpartisan Office of Legislative Services.

The 94 estates worth more than $5.34 million, the federal threshold, accounted for more than a third of that total revenue. On average, those richest estates paid $1.2 million.

Estates valued from $675,000 to $1 million paid an average of $21,000 and raised $29.7 million for the state budget.

The estate and inheritance taxes together generated nearly $650 million, and the state is expecting to collect about $760 million in estate and inheritance taxes this year.

MacInnes said he's not aware of any proposals to replace that money or cut matching spending should either tax be repealed or slashed. New Jersey can't afford to lose $300 million to $700 million in revenue, he said.

"In a state that can't balance its budget, it's sort of approaching irrationality. Maybe madness," he said.

New Jersey was thrown into a financial emergency last spring when tax collections came up short and tore massive holes into this year's and last year's budgets.

"We are against the idea of using the absolute emergent need to put the Transportation Trust Fund on stable financial footing with adding to our fiscal woes by eliminating or reducing the estate and inheritance taxes," MacInnes said.

State Sen. Robert Gordon (D-Bergen) agreed the estate tax should be reformed.

"When my own father asked me if he should move to Florida, I knew we had a problem in this state," he said — but that linking it to the gas tax is wrong.